Ginners hoping to propel prices upwards

COTTON: Business on the cotton market remained strained as reports persisted that ginners were holding back on selling their stock on the current price levels. With precious few quantities of the better grade of fiber remaining in stock, ginners are said to be wielding a heavier hand, hoping to propel prices upwards in the coming weeks.
As of now, prices remain steady, with official spot rate remaining unchanged from the last week at Rs 6,100. In the ready market, the rates of Seedcotton as of Thursday were hovering between Rs 2,200 and Rs, 2,800 per 40 kg in Sindh, while in Punjab they were slightly higher, with the better varieties going for as high as Rs 3,300 per 40 kg.
Meanwhile, estimate statistics for the total output of cotton produced in the country this season have now been brought down to 13.5 million bales on an ex-gin basis, while consumption during the season is supposed to hover around the 16 million bales mark, prompting a tighter dynamic in the market. With demand for Pakistani yarn remaining strong, consumption by spinners will also remain strong; hence driving up prices for the locally sourced fiber in the medium term.
On the international front, Reuters reports an easing in the US cotton futures, where prices softened for a third time this week after hitting a seven-month high of 84 cents/lb in late January. Cotton, which had outperformed other commodities on the Thomson Reuters-Jefferies CRB index in January, went further down this week on account of the USDA's weekly export data which showed lagging demand in the market. Hence the most-active March cotton contract on ICE Futures on Thursday went down by nearly 0.4 percent, settling at around 81.40 cents/lb, the fiber's lowest price in the last 10 days.
RICE
Prices in the international rice market again remained within bounds, moving up and down in a tight $5-$10 range across different varieties as an ample plethora of stocks with the Asian rice giants keeps a check on everything with no supply shocks foreseeable in the future.
The benchmark 5 percent broken white rice in the meantime softened once again in a second week running as prices for the Pakistani variety shed another $5, going as low as $415/ ton, bringing prices closer to the levels at which the Vietnamese varieties are selling for.
Meanwhile, Chinese customs data has reported that the largest proportion of the country's 2.3 million tome was made up by Vietnamese rice, while Pakistan came a distant second, making up 25 percent in 2012.
Beijing, whose rice exports have quadrupled over 2011 despite local paddy output rising for the ninth straight year, has been the most lucrative of export destinations for the Pakistani sellers. With the hiking Yuan and increase in the prices of both indigenous and the favoured Thai varieties rising beyond bounds, Chinese buyers have increasingly been turning to lower priced substitutes offered by both Pakistan and Vietnam.
WHEAT
Wheat prices have taken a fleeting breather this week hovering around Rs 3200 - 3400 per quintal as against Rs 3500 a week earlier. According to industry experts, the transient drop in prices is a consequence of the supply of the commodity by the food departments to the millers.
Passco started sale of 400,000 tons of wheat to millers on January 21. USC also purchased 75,000 tons wheat from Passco to ease the continuing wheat flour shortage and keep its prices in check. Millers highlighted that despite wheat shortage and price hike in the country, there is a sluggish release of the commodity by the government agencies. Consequently, the retirement of wheat financing is also on a very slow track.
Reportedly, only Rs 70 billion was retired during the H1-FY13, while Rs 285 billion is yet to be paid by these agencies. To add to the ado, in the first week of the current month, Passco was accused by Social Legal Anchor Foundation in Lahore High Court of selling 400,000 tons of wheat to millers selected on favouritism basis because of which the provincial exchequer could suffer a loss amounting Rs 500 to 600 million. Resultantly, the court further ordered the Passco to hold a fresh and transparent auction through open tenders for the sale of wheat. This would further delay the process of wheat acquisition by millers and provoke another round of wheat price hike.
Conversely, when talked to the government agencies, yet another perspective was learnt. Informed sources told BR-Research that the Sindh government has increased the daily quota of flour mills from 400 bags per mill to 600 bags at the rate of Rs 2850 per quintal for 22 days, regardless of which millers are not complying with the flour rate of Rs 33 per kg set by the government and selling it at a price as high as Rs 44 per kg. Moreover, chakki owners acquire wheat from the open market at the rate of Rs 3450/100 kg and sell wheat flour at the price of Rs 45 per kg.
Industry insiders further highlighted that wheat and related products witnessed the 2nd highest MoM price hike of 11.32 percent, after tomatoes (61 percent), during January 2013 over December 2012.
Amid so many gloomier factors, the silver lining is that the recent rains proved to be a boon for the wheat crop, currently at the booting stage, requiring large quantity of water. The rains are likely to increase the wheat output by 3 to 5 percent. However, it will not touch the production level attained last year because of lesser cultivation area.
Going forward, wheat prices are expected to jump further as a result of a higher wheat support price, set for the new crop.
Talking about India, the wheat harvest may decline to 92.3 million tons in FY13 from a record 94.9 million tons which would be the first drop since 2004-2005. However, the bumper crop for seven years has expanded state wheat stockpiles to about 31 million tons, triggering the government to increase exports to empty the warehouses for the new harvest starting March.
On the global front, the World Agricultural Outlook Board (WAOB) projected global wheat supplies for 2012/13 to remain unchanged with an uptick in the beginning stocks which offset a small drop in production. That said, global wheat output is projected 0.7 million tons lower. Production is lowered for Kazakhstan and Brazil, but raised for Ukraine, South Africa, and Belarus.
Looking at the global prices, US hard red wheat for Gulf delivery settled on $340 per ton, on February 09, 2013, as against $304, a year ago. While the EU France grade-1 wheat clocks in at $332 per ton, as against $290 per ton, last year.
SUGAR
Sugar prices hovered at Rs 48.5 to 50 per kg across the country, witnessing stability for quite some weeks.
In December, ECC had asked TCP to procure 330,000 tons of sugar from domestic mills to alleviate their financial crunch. Following the ECC directives, TCP opened sugar procurement tender and finalised deals with 71 mills for procurement of 330,000 tons of sugar at Rs 52,800 per ton.
At the outset, sampling and inspection of 29 sugar mills had almost been completed, while remaining 42 would be finished in one or two weeks.
Industry sources said that TCP will start making payments, against the procured sugar, to domestic sugar mills from next week after mills' test reports were found fit as per prescribed standard. With the procurement of 330,000 tons of sugar, TCP's sugar stocks may reach 0.5 million tons which will be supplied to USC and other provincial food departments as per their demands.
Besides, TCP procurement, sugar exports to various destinations is under way for which millers are availing the FED reduction. However, the barter deal with Iran is yet to take-off.
On the prices front, after suffering for so many years, sugarcane growers seem satisfied this season as they are getting better price of their produce from sugar millers. This is because of the higher support prices set by government and higher demand from millers as the government allowed sugar mills to export, which helped them offload their surplus stocks and buy fresh harvest.
Looking at the global scenario, a supply glut is witnessed across the countries. Cane production costs in top sugar exporter Brazil have begun to plunge due to the outlook of a plentiful harvest and will force some of the least efficient beet growers, many of them in Eastern Europe, to switch out of sugar.
Talking about China, the country is storing sugar it does not want or need as inflated domestic prices, designed to protect farmers who face some of the world's highest production costs, attract imports from a global market overflowing with supplies. USDA estimated China's sugar stocks at the start of the 2012/13 season at 3.605 million tons, up from 1.621 million tons a year earlier.
Sugar mills in India are expected to churn out 24.3 million tons in 2012/13, which albeit is down from 26 million tons in the previous year, but higher than about 22 million tons of local consumption.
Amid supply superfluity, the prices of raw sugar in the international market have fallen significantly from a peak of more than 36 cents set almost exactly two years ago.
March 2013, No 11 raw sugar contract at ICE fell to 18.84 cents/lb from 18.89 cents/lb last week, while No 5 December white sugar contract at LIFFE was traded at $485/ton on February 09, from $502.50/ton, last week.